More delays and increased costs feared on EADs projects

EADS management has finally unveiled a realistic calendar for its beleaguered A380 superjumbo - but analysts warned the extent of the troubles increases the likelihood of similar delays and cost overruns for two other major Airbus projects, the A400M military transport and the A350 medium sized airliner.

EADS management has finally unveiled a realistic calendar for its beleaguered A380 superjumbo - but analysts warned the extent of the troubles increases the likelihood of similar delays and cost overruns for two other major Airbus projects, the A400M military transport and the A350 medium sized airliner.

Given the uncertain outlook and the damage already done to Airbus's reputation for successfully developing new planes, it may be several years before EADS shares recover from recent losses, they said yesterday.

On Tuesday, EADS pushed back the first A380 deliveries by another year on average, putting the programme a full two years behind schedule.

It was the third warning of delays since June 2005, and several analysts were willing to bet it would be the last, if only because the new Airbus chief executive Christian Streiff has staked his reputation on drawing a line under the A380 problems.

No order cancellations have been announced so far, but the setback will cost another 2.8 billion euro (£1.89 billion) at the EBIT (earnings before interest and tax) line from 2006 to 2010, when the A380 programme might finally turn profitable.

Overall, the A380 problems will cut EBIT by 4.8 billion euros (£3.24 billion), which has forced EADS to promise a new restructuring drive aimed at cutting costs by 2.1 billion euros (£1.41 billion) per year from 2010, while also saving five billion euros (£3.37 billion) of cash by the end of the decade.

"We see this as essential if Airbus is to regain competitiveness against Boeing in a low-dollar environment," said analysts at Goldman Sachs.

But Boeing is already sweeping up new airline orders with its 787 Dream-liner, a mid-size plane developed on the assumption that air travellers will prefer shorter, direct flights as opposed to Airbus' vision of increasing hub-to-hub flights.

As of September, Airbus had only booked 222 firm orders, while Boeing had a whopping 548 contract wins.

In response to this threat, EADS was forced this summer to announce a broad revision of its A350 plane, though it has not yet given the official go-ahead for the rebaptised A350XWB. The revamp has put the programme two years behind schedule, and the development budget could double initial forecasts at nearly nine billion euros (£6.08 billion).

But EADS has not yet disclosed the total cost or any financial penalties it could face.

Analysts estimate the A350XWB will require new writedowns anywhere from 300 million euros (£202.7 million) to one billion euros (£675.6 million), while Goldman Sachs said a two billion euro (£1.35 billion) charge could be taken by the end of this year.

The other Airbus programme at risk is the A400M military transport plane, of which 192 models have already been sold to European governments.

Despite a series of reports, EADS has insisted that the programme is still on schedule, but management has refused to confirm there would not be any cost overruns.

"This is a fixed price contract and hence delays are likely to lead to penalties that we estimate could cost 500 million to one billion euros (£337.8 million to £675.6 million)," said Olivier Esnou at Exane BNP Paribas.

Analysts at Morgan Stanley added: "We cannot discount the chance that this becomes a loss-making programme."